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In response to a congressional request, GAO provided information on the floating exchange rate regime's compatibility with the international trading system's principles and U.S. trade laws to determine: (1) how exchange rate fluctuations can affect import relief the Trade Act of 1974 grants under section 201; (2) whether exchange rate changes alter the findings and the protection of the antidumping and countervailing duty laws; and (3) whether General Agreement on Tariffs and Trade (GATT) goals, principles, and remedies are compatible with a system of floating exchange rates.

GAO found that: (1) exchange rates influence the effectiveness of tariffs in protecting domestic industries; (2) if the dollar appreciates relative to other currencies after imposition of a tariff, the domestic industries' protection would diminish; (3) when exchange rate changes impair the ability of tariffs to protect industries that have obtained relief under the Trade Act's provision, they create substantive problems in achieving the law's objectives; (4) quantitative restrictions on imports impose considerable economic costs on the country seeking to limit imports; and (5) GATT favors tariff protection, rather than quantitative restrictions, since tariffs create less trade distortion, are less burdensome, and are a less ambiguous form of protection.

Recommendations for Executive Action

Status: Closed - Not Implemented

Comments: No cases have been filed under section 201 since this recommendation was made, so there has been no opportunity to implement this recommendation. The infrequent cases require more than 1 year of processing, so there are no near-term prospects for action. GAO hopes to raise this issue with the next administration.

Recommendation: The Secretary of the Treasury should direct the Treasury to experiment with auctions in selected section 201 cases and evaluate their effectiveness, administrative feasibility, and potential for wider application. Treasury should have primary responsibility for these auctions, since it has experience in auctioning government securities and the auction would be a source of government revenue. Treasury should coordinate its actions with other government agencies involved in section 201 cases.

Agency Affected: Department of the Treasury

Status: Closed - Implemented

Comments: The U.S. Trade Representative agreed to take this recommendation into account in ongoing multilateral trade negotiations; however, these negotiations are expected to last several years.

Recommendation: The U.S. Trade Representative, in negotiations with other nations on a safeguards code, should explore the feasibility of including auction import rights to administer quantitative restrictions as an option for nations to implement safeguard actions.

Agency Affected: Executive Office of the President: Office of the U.S. Trade Representative